Month: September 2013

By The Sizemore Letter

Europe has been calm of late.  Former Italian prime minister Silvio Berlusconi is facing house arrest, and it barely makes the news.  A year ago, this would have caused a run on the euro and roiled the world’s capital markets.

And Greece, the country that first comes to mind when the words “Europe” and “crisis” are used in the same sentence, has been relatively quiet as well.

Actually, I should rephrase that.  Greece is far from quiet.  In fact, even doctors have taken to the streets in protest over…well…who cares, really.  The fact is that the capital markets have stopped reacting to news out of Greece.  Greek bond yields have bounced around in a fairly tight range all year and have actually been falling for the past two months…in spite of the global Fed tapering scare. There is a tacit understanding that Germany will continue to keep the Greek government afloat indefinitely, so long as Greece continues to at least make a credible effort at reform and austerity.

It’s not too terribly surprising that Greece will need more bailout funds this year and next.  But what is surprising is that Greece is slowly clawing its way out of perma-crisis.  Greece may actually post a primary budget surplus (i.e. a budget surplus excluding interest payments on existing debt) this year.  In fact, through the first seven months of the year, Greece reported a primary surplus of €2.6 billion.

Yes, you read that correctly, and no, it wasn’t a sarcastic joke.  Greece’s condition is actually improving.  The country still depends on its bailout lifeline for the fragile stability it has at the moment; any attempt to go directly to the capital markets would plunge the country back into crisis and probably default and ejection from the Eurozone.  And its economy is still contracting; GDP shrank by 4.6% last quarter.  More than a quarter of Greek are unemployed (see chart), and wages are falling.

Still, the GDP contraction is the slowest in two years, and we should remember that employment is a lagging indicator.  It’s not unusual to see unemployment remain high in the early stages of recover.

Is it time to consider Greek stocks?  Fellow “Best Stocks of 2013” contestant Meb Faber certainly thought so when he recommended the Global X Funds Greece ETF (GREK) back in January.  Meb was a little early on the call (which is a common curse on value investments), but he correctly noted that Greece had the cheapest stock market in the world.

Almost exactly two years ago, I mentioned three Greek stocks I would consider buying once the dust had settled after a sovereign debt default and possible ejection from the Eurozone.  Well, the default never happened.  But are the stocks a buy?

I’ll start with the Coca-Cola Hellenic Bottling Company (CCH).  Despite its name, this is not really a Greek stock.  It is based in Switzerland, has operations in 28 countries and serves 581 million people, primarily in Eastern and Southeastern Europe. Though listed on the Athens Stock Exchange, it also trades on the London Stock Exchange and on the NYSE as an ADR.

None of this is lost on the stock price.  For a nominally-Greek stock, Coca-Cola HBC is not cheap. It trades for 1.25 sales—only slightly cheaper than Coca-Cola Enterprises (CCE), the Coke bottler for most of Western Europe.  It’s price / earnings ratio—at 52.7—is overstated due to earnings being depressed.  But suffice it to say, this stock is not a screaming bargain by any stretch.

Hellenic Telecommunications Organization SA (HLTOY), as Greece’s leading phone, internet, and mobile provider, is a much purer play on Greece.  Its stock has also had an impressive run, up over 500% since bottoming last summer.

Yet despite the run-up, shares are not expensive, trading at 12 times depressed earnings and 0.85 times sales.  If you’re bullish on Greece, this is probably the safest way to play a rebound, though I should emphasize that Greece is still a very risky market.

And finally, we get to the National Bank of Greece (NBG), the third stock I said that I would consider two years ago.  Be careful with this one.  If Greece were to leave the euro or outright default on its debts—which, though not likely at this point, cannot be ruled out—this stock will be worthless.  If you buy this, you are making a bet that Greece stays in the Eurozone and continues to service its debts indefinitely.  Still, trading at 4 times earnings and only a few dollars away from its all-time lows hit earlier this summer, it might be worth a speculative bet.

This article first appeared on InvestorPlace.

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he had no positions in any security mentioned. Click here to learn about his top 5 global investing trends and get your copy of “The Top 5 Million Dollar Trends of 2013.”

This article first appeared on Sizemore Insights as Has Greece turned the corner?

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By www.CentralBankNews.info     Ghana’s central bank held its policy rate steady at 16.0 percent, saying the risks to inflation and growth were balanced with the central path for inflation still above the bank’s limit despite a marginal decline in inflation in August.
    The Bank of Ghana, which raised rates by 100 basis points in May in response to accelerating inflation, said there had been further rises in petroleum and transport prices this month and there is a possibility of higher utility tariffs in the fourth quarter and commodity prices also pose a risk to inflation.
    These upside risks, however, could be moderated by an improved harvest, relative stability in the foreign exchange market and subdued global inflation.
    “Barring any shocks, inflation could move back to the target range by the first half of 2014,” the central bank said. The bank targets inflation of 9 percent by year-end, plus/minus 2 percentage points.
    Ghana’s inflation rate eased slightly to 11.5 percent in August after six months of consecutive increases and from 11.8 percent in July. The decline was due to lower increases in non-food prices, an indication that the pass-through effects of earlier petroleum price adjustments may be ending, the bank said, adding that food prices surprises on the upside.
   Economic activity in Ghana had picked up, the central bank said, evidenced by a rise in the central bank’s Composite Index of Economic Activity (CIEA) in July, the bank’s survey of credit conditions that showed a net easing of credit conditions and increased oil production.
    However, the downside risks include budget cutbacks and softening consumer sentiment may also pose a downside risk to the growth outlook.
    Ghana’s Gross Domestic Product contracted by 3.1 percent in the first quarter for annual growth of 6.7 percent, up from 6.0 percent in the fourth quarter.
    The foreign exchange market has become less volatile and the central bank said it expects pressures to ease further with the impending inflows of the cocoa syndication loan market and MDBS disbursements.
    In the first eight months of this year Ghana’s cedi currency depreciated at a slower rate of 3.9 percent against the U.S. dollar compared with a depreciation of 18.4 percent during the same period in 2012.
    Over the last month the cedi has depreciated slightly, trading at 2.17 to the U.S. dollar today, down from 1.9 at the start of the year.

    www.CentralBankNews.info
   

London Gold Market Report
from Adrian Ash
BullionVault
Weds 18 Sept 08:25 EST

The WHOLESALE price of gold fell below $1300 for the first time in 6 weeks Wednesday morning in Asia, as traders in all markets awaited today’s US Fed announcement on QE tapering.

 Regaining that level in London – a record high when first reached 3 years ago next week – gold still held 7% beneath the start of September.

 The US Dollar held flat meantime, as did US Treasury bonds.

 World stock markets ticked up with commodities. Silver rallied 20c from an overnight low at $21.37 per ounce.

 “Any surprise [on Fed tapering] could push gold prices fiercely in either direction,” says a commodity trading desk’s note.

 Longer-term, “Tapering really removes the upside case for gold,” reckons UBS commodity analyst Daniel Morgan in Sydney, speaking to Bloomberg.

 “I don’t see any big reasons to be bullish on gold in the short term.”

 Going further, analysts at Societe Generale today say that “Rate hikes will follow tapering, markets are too complacent,” in a new cross-asset strategy report.

 Recommending 7 key trades, “Switch out of emerging markets and associated commodities,” the French investment bank and London bullion market maker says.

 “Sell gold now,” SocGen’s report adds, pointing both to Fed tapering and “lower sovereign risk from the Eurozone.”

 Shorter-term ahead of today’s US Fed policy statement, “A large part of the market is already short in anticipation of [tapering], says David Govett at brokers Marex.

 “[So] if no taper is announced, gold will shoot straight back up as all the shorts run for cover,” Govett believes, forced to close their bearish bets at rising prices.

 Surveys and economists’ comments today put the consensus expectation for QE tapering at $10-15 billion, cut from the current level of $85bn per month.

 “If this [proves] the case gold is unlikely to come under further pressure,” writes Eugen Weinberg’s team at Commerzbank.

 “Of greater importance will be the way Bernanke steers the market’s expectations of future monetary policy measures [in his 14:30 ET press conference].”

 But “we tend to believe,” counters a note from London market-maker HSBC, “that the bulk of gold declines based on tapering are already largely factored into current prices.”

 After an initial knee-jerk drop, “[only] a heavier tapering program on a more limited timetable could lead to a second-round of sales,” its precious metals analysts say.

 UK policy makers at the Bank of England voted 9-0 this month to keep their quantitative easing unchanged, minutes from the Sept. meeting showed Wednesday morning.

As recently as last month, some members of the committee had seen a “compelling” case for extending the current £375 billion in QE – now used to buy one-third of all UK government debt in issue.

 “As monetary conditions normalise,” reckons Kevin Gardiner, Barclays’ chief investment officer for Europe, “[gold] investment demand is expected to weaken while physical demand growth from India will likely remain soft.”

 World No.1 gold consumer India yesterday saw import duty on gold jewelry raised to 15%, giving domestic manufacturers a price advantage as gold bullion duty stayed at 10%.

 “[Such] bearish news articles doing the rounds have precious metal investors spooked,” says analyst Moudi Raad at refining and finance group MKS in Geneva.

 Looking at the broader natural resources market, however, “Commodities continue to provide diversification versus stocks and bonds,” says a new article from portfolio managers Nicholas Johnson and Greg Sharenow at Pimco, the $2 trillion California-based bond and asset management firm.

“[Commodities] are also one of the most potent ways to hedge against unexpected changes in inflation.”

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can fully allocated bullion already vaulted in your choice of London, New York, Singapore, Toronto or Zurich for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By HY Markets Forex Blog

Prices for the West Texas Intermediate crude was seen in green on Wednesday, driven by the upbeat data of the US stockpiles data that are expected to drop in more than a year.  Traders are looking forward to the conclusion of the US Federal Reserve two-day meeting, later today, as analysts are expecting the scaling-back of the US stimulus program to hurt the crude prices.

WTI October deliveries rose 0.73% higher at $106.21 a barrel at the time of writing on New York’s Nymex, while the European benchmark crude Brent fell 0.16% lower to $108.02 a barrel after dropping to its lowest in over a month in the previous session.

WTI Crude hit its third monthly advance in August, assisted by the global supply worries from the oil-rich Middle East region. Syria was on the edge of a military intervention from the US, threatening the oil-rich Middle Eastern region.

Crude Prices- Eased Tension

The United Nations Security Council started its official talks on Tuesday to discuss about destroying Syria’s chemical weapons. The recent calming news has eased the heated oil markets, putting an end to the US plans for a military intervention against Syria.

The oil-rich country Libya, a member of the Organization of Petroleum Exporting Countries (OPEC) and one of the largest oil reserves in Africa, resumed at its Zawiya and Mellitah terminals on Tuesday. Production picked up from El Feel and Sharara, adding an additional 400,000 barrels a day (bpd), the state’s National Oil Company announced.

Crude Prices – Stockpile estimates

The US crude stockpiles dropped by 252,000 barrels last week, according to the non-public data compiled by the American Petroleum Institute (API).

Supplies in the largest oil-storage hub in Oklahoma, dropped by 889,000 barrels, according to reports from the American Petroleum Institute (API).

The US stockpiles is expected to have contracted another 1 million barrels over the last week to 359 million barrels.

Gasoline stockpiles are predicted to show a 500,000-barrel rise last week, while the distillate inventories is expected to show a fall of 167,000 barrels, according to analysts.

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The post Crude Prices: WTI Ends Three-Day Fall On US Stockpiles Data appeared first on | HY Markets Official blog.

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By HY Markets Forex Blog

Asian Stocks  were seen trading mixed on Wednesday, as investors waits for the decision from the Federal Reserve’s (Fed) two-day meeting ending today. Analysts are expecting the Fed to announce when they would begin to scale-back on its stimulus program.

Meanwhile, the Japanese indices advanced, as it was driven by the upbeat data seen in the US indices from the previous session, as investors waits for the conclusion  of the Fed Open Market Committee(FOMC) from its two-day meeting ending toady.

Majority of investors are expecting the Fed to begin tapering its $85 billion monthly bond-buying program as soon as this month, while some analysts are predicting that the Fed policymakers would postpone their decision until December due to the mixed results released in the recent weeks.

Earlier in May, Fed Chairman Ben Bernanke hinted that the central bank could begin to scale-back on its US stimulus program as soon as this year, which has lead to investors worrying over the possible risk of tapering.

Asian Stocks – Japan

The Japanese benchmark Nikkei 225 advanced 1.35% higher to 14,505.36 points, after reaching an eight-week high of 14,578.34 points earlier in the day.

The US dollar was seen rising slightly higher against the Japanese yen, edged up 0.08% at ¥99.22.

Electronics manufacturers, Tokyo Electron, saw the biggest gain as it rose 5.5%, while Taisei Corporation, declined 1.8%.

Kawasaki Heavy Industries, gained close to a six-year high, rising 4.4% higher. While Kansai electric dropped 1.4% after stopping units from its two power plants. Sharp Corporation edged up 1.9% higher, following its board meeting announcement, where the board members are  expected to discuss a public offering of shares and a capital alliance to improve its balance sheet.

Tokyo’s broader Topix index advanced 1.05% higher to 1,194.65 points, driven by the region’s upbeat data.

Asian Stocks – China

In China, the country’s session saw slight gains, with Hong Kong’s Hang Seng gaining 0.05% to 23,191 points at the time of writing, while the mainland biggest Shanghai Composite advanced 0.29& higher to 2,192.05 points.

China’s housing index rose to 8.3% in August from previous reading of 7.5% in July, the National Bureau of Statistics of China confirmed.

Cheung Kong Holdings, real-estate developer gained 2.2% higher, while it rival China Resources lost 2.4%.

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The post Asian Stocks Mixed Ahead of Fed Meeting Conclusion appeared first on | HY Markets Official blog.

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I hate to say this again, but major pairs on the FX market place still have a very unclear price action and no direction at all on the intra-day basis. It’s probably “calm before the storm” ahead of highly anticipated FOMC press conference of the last few years, when Bernanke could announce tapering.  Statement will be out at 18:00GMT and press conference will be scheduled 30 minutes later. So until then we may not see a lot of price action today. However, when any changes regarding the monetary policy will be announced then expect a huge impact on USD pairs, particularly USDJPY which has a strong relationship with US yields.  US bonds will move strongly today, and will be interesting to see in which direction they will go if they will start tapering. Keep in mind that markets usually reacts the opposite than you would normally expect. During the QE period, interestingly, bonds were falling/yields rising so if they will lower QE now then this could cause the opposite reaction; higher US bonds in this particular example. That is what we called “buy the rumor sell the news” scenario.

Somehow, I would not be surprised by higher US bonds and reason is the following count on 30year US bond daily chart where I see five waves down in wave III with ending diagonal at the bottom that is pointing for higher prices. A daily close above 132.20 wave 4) extreme would be a bullish signal. If this count would prove correct then US yields will fall which will cause a bearish trend on USDJPY!! For now nothing is confirmed, especially not ahead of FOMC when anything is possible. Bonds could also continue lower if monetary policy remains unchanged, that’s why we need a close above 132.20 to confirm any larger reversal.

30Year US Bonds daily

Written by www.ew-forecast.com | Try EW-Forecast.com’s Services Free For 7 Days at http://www.ew-forecast.com/service

By WallStreetDaily.com

Here comes the Fed!

We’re mere hours away from receiving a decision on the most overhyped debate in recent memory:

“To taper or not to taper…”

Who does Bernanke think he is anyway, William Shakespeare?

Puh-lease!

The next policy announcement from the U.S. Federal Reserve’s Open Market Committee is due at 2 PM EST, followed by a live media briefing with Chairman Ben Bernanke at 2:30 PM.

But come on, people!

The Fed isn’t cutting off the sauce cold turkey. We’re talking about tapering, here – perhaps as little as $5 billion per month and no more than $20 billion per month.

So the Fed will still be propping up the market to the tune of $65 billion to $80 billion per month.

The end result? The taper obsession gripping the market is complete nonsense.

Or as Bob Doll, Chief Equity Strategist at Nuveen Asset Management, says, “Eventually, we’ll forget all about it.”

Indeed! Heck, it’s not even the most important announcement to come out of the Fed today.

So what is?

~ Fed Focus #1: It’s All About Economic Guidance

When Fed officials provide their policy update this afternoon, we’ll also get their first forecasts for economic growth for 2016.

The party line for many economists (and the Fed) has long been that the U.S. economy will accelerate in the second half of this year.

Yet that’s becoming harder to accept at face value given the following:

• Hiring recently tapered off. The economy only added 169,000 jobs in August.

• Consumers cut back on spending, with retail sales increasing a measly 0.2% last month.

• And confidence appears to be waning. The preliminary reading of the University of Michigan/Thomson Reuters Consumer Sentiment Index for September fell to its lowest level in five months, at 76.8.

Stephen Stanley of Pierpont Securities insists that “the languid August results underscore the big picture point that I have been hammering away at for a while: The vaunted second-half acceleration in the economy ain’t happening.”

Will the Fed read the data the same way? If so, it could have profound policy implications. Namely, it would warrant the Fed stimulating the economy even longer by keeping interest rates at historically low levels.

Bottom line: Any perceived economic weakness by the Fed should show up in future guidance. The Fed currently expects GDP growth of 3% to 3.5% for 2014 – and 2.9% to 3.6% for 2015.

~ Fed Focus #2: Deciphering the Real Unemployment Situation

Since the Fed launched QE3, the unemployment rate has dropped from 8.1% to 7.3%. If it falls to 6.5%, by the Fed’s own admission, it’s going to look to (finally) increase interest rates.

However, as I’ve noted before, the drop in unemployment is a total crock. It’s been caused by more and more Americans dropping out of the workforce – not joining it.

Bottom line: Thanks to the sad labor participation rate, look for the Fed to lower its 6.5% threshold. Otherwise, it runs the risk of investors thinking the labor market is strong – and that an interest rate hike is coming sooner rather than later. And that would be downright irresponsible, given the data.

~ Fed Focus #3: Revisiting Inflation Limits

The Fed has conceded that persistently low inflation could be problematic. And that’s precisely what we’ve got.

Case in point: In April, inflation checked in at a shockingly low level of 0.9%, year-over-year. It’s now only hovering around 1.2%. And that’s well below the Fed’s stated inflation target of 2%.

Bottom line: Expectations for inflation are key for determining when to raise interest rates. So look for the Fed to dial in its guidance to also include a lower bound for inflation.

JP Morgan (JPM) suggested a level of 1.5%, below which the Fed won’t look to raise interest rates, either. We’ll soon find out if the Fed agrees, or if it has another target in mind.

The True Fed Dilemma

A Fed taper is a foregone conclusion. It’s coming within months. However, the more significant event – an interest rate hike – remains a moving target. Just ask traders.

Based on the most recent futures prices, there’s a 55% probability of the first rate hike occurring in December 2014, and a 68% probability for it occurring in January 2015. Compare that to a few days ago when the majority of traders expected the first increase to come in October 2014.

Bottom line: The true Fed dilemma is when to raise interest rates. And that decision hinges on expectations for the economy, inflation and the ever-fragile employment market. So forget about the taper. Instead, pay attention to the Fed’s announcements on these three critical issues this afternoon.

Ahead of the tape,

Louis Basenese

The post Taper This! Three Real Reasons We Should Care About Today’s Fed Meeting appeared first on Wall Street Daily.

Article By WallStreetDaily.com

Original Article: Taper This! Three Real Reasons We Should Care About Today’s Fed Meeting

USDJPY stays in a upward price channel on 4-hour chart, and remains in uptrend from 95.81, the fall from 100.60 could be treated as consolidation of the uptrend. As long as the channel support holds, the uptrend could be expected to resume, and one more rise to 101.50 area is still possible after consolidation. On the downside, a clear break below the channel support will indicate that the uptrend from 95.81 had completed at 100.60 already, then the following downward movement could bring price back to 95.00 zone.

Provided by ForexCycle.com

By MoneyMorning.com.au

Your editor likes a rising stock market as much as the next man.

But we won’t be suckered into believing bogus reasons for a stock rally.

That’s especially so when the reasons don’t pass the smell test.

You’ll have read the news that the supposed front-runner for the job of US Federal Reserve chairman, Larry Summers, pulled out of the race at the weekend.

The stock market met this news with delight. Apparently – we’re told – Mr Summers would have put an end to the whole money-printing thing and set the US Federal Reserve on an entirely new course. But now, with Summers out of the way, the path is clear for the current deputy chairman, Janet Yellen.

She loves money printing, hence the market’s overjoyed response to her assuming the lead in the race to win the Federal Reserve chair.

It all sounds very believable. But if you do believe it, we’re afraid you need your head examined, because it’s 100% hogwash…

An important thing to remember about markets is that they’re always looking for reasons and excuses to move in one direction or the other.

Sometimes it’s a verifiable and justifiable reason. Other times it’s just the best excuse for the stock market going up that anyone can think of.

It’s why one day you may see the market rise because ‘lower oil prices will help cut the cost of doing business.’

And the next day you may also see the market rise because ‘higher oil prices show a pick up in demand from a recovering economy.’

To some degree it’s a glass half full or half empty moment. The same goes with the Summers withdraw.

The ‘Committee to Save the World’

Let’s look at two key pieces of evidence to prove why the story is junk, and also to prove that whoever takes over the top job, the result will be the same…that is, more of the same…more money printing and a maintenance of low interest rates.

Below is a one-month chart of the US S&P 500:

Source: Google Finance

For that period, including the period from the end of August through to last Friday, the market assumed Larry Summers was the front-runner to lead the Federal Reserve.

So disturbed was the market by this prospect that stocks climbed 3.5% in just two weeks. Do you really believe stocks would have behaved this way if big investors thought the assumptive Fed chairman would pull the monetary rug from under the market?

No, of course not.

But what of the price spike on Monday with the news of Summers’ withdrawal? Well, it was a 0.57% gain…let’s not get too over-excited. As we often say, the market is always looking for an excuse to do something; this is one such example.

But it’s not the only proof that Summers would have happily put his finger down hard on the print button. Perhaps you remember this relatively famous TIME magazine cover from 1998:

Click to enlarge

That’s Larry on the right, at the time he was Deputy Secretary of the Treasury. The US Federal Reserve chairman of the time, Alan Greenspan, is in the middle, and then US Treasury Secretary Robert Rubin is on the left.

You can see from the headline they were dubbed the ‘Committee to Save the World’. There were responsible for saving the world from the 1998 Asian Financial Crisis.

Battle: Grey Hair

What point are we trying to make?

The point is you shouldn’t be fooled by the idea that out there somewhere there is some rational policymaker or bureaucrat who is determined to stop the madness of money printing and low interest rates.

That just won’t happen. How many more times can we say this? Interest rates are going nowhere.

You’re not dubbed part of the ‘Committee to Save the World’ if you turn up, say the party’s over and then proceed to pull the plug, causing the whole thing to collapse.

So no, don’t fall for the spin. Don’t for a moment think the US Fed was within a sniff of getting a chairman with a plan to stop printing money. That’s not how things work.

The market was just looking for an excuse to go up. It got one…and so it went up. Financial markets can be incredibly hard to interpret sometimes. Other times they can be incredibly easy.

Stock prices are rising and falling for some very dubious reasons at the moment. We like to see prices rise or fall based on company earnings and technological breakthroughs.

We’re not so excited when the reason for rising stocks is whether the market prefers a grey-haired lady to a grey-haired man.

So just be aware that when the market is this fickle, rising on little more than hot air, it won’t take much more than a cold draught to knock it back down again.

This is why, despite our belief that stock prices are heading higher,  we want you to be careful. This is why we don’t recommend a big exposure to stocks. Keep adding to your portfolio gradually but with stocks this high, do be prepared for a possible short-term dip.

Cheers,
Kris+

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By MoneyMorning.com.au

The big theme of the day today was cyber security. Along with the fear of potentially losing their livelihood to the likes of Google and Amazon, the other thing to keep bankers up at night is cybercrime.

And it comes in a variety of forms. There are the attacks you hear about in the media on a weekly basis. Distributed Denial of Service (DDoS) attacks are one kind. DDoS attacks are what the papers like to call ‘the end of the internet’. But it’s really just a flooding of data to a website or network to basically jam it up.

And then there are Hacktivists. We’ll get on to Hacktivists shortly. But they’re all about ‘taking down the man’, so to speak.

And interestingly the number one type of cyber security concern the chief technology officers had was internal threats and rogue employees.

That’s right, the Syrian Electronic Army can bombard major banks all they like. Anonymous or LulzSec can go to town on a bank’s core systems. But the biggest worry boards around the world have is from their very own employees.

Of course the kinds of boards most worried about internal threats are indeed from the banks. So let me ask you this…

Do you think the number one cyber security worry Google, Facebook or Twitter has is an internal rogue employees?

I doubt it. It seems internal threat is at epidemic proportions in the big banks of the world. Here’s what Nigel Hayward, CIO at J.P. Morgan had to say about it,

‘You’ve got to take a multi-faceted approach.

‘At J.P. Morgan you cannot plug in a USB device.

‘Employees and contractors have patterns and you can track those patterns.‘

Track patterns? Can’t plug in a USB device? Wow, sounds like the big bank is a really fun place to work.

Oh and in case you were unaware, J.P. Morgan reaped $5.77 billion in banking fees in 2012. And the average (yes, average) pay for Managing Directors in J.P’s Mergers Advisory arm was $1.7 million.

With 258,000 employees across the business, I’m pretty sure not everyone is sharing in the wealth there. It’s no wonder they have a rogue employee crisis. I’d go rogue too with that kind of inequality within the one organisation.

The More You Make The More They’ll Hack

The bigger they are the bigger a target that sits on their head. The annual security spend of these big banks runs into the hundreds of millions of dollars. And the price is going up.

J.P. is planning to increase cyber security spend by over 10% next year. And an audience poll had 52% of the crowd planning on spending over 10% more on cyber security too.

Beware of The Pimply Faced Teenager

You could almost smell the fear permeate through the audience when the term ‘Hacktivist’ was brought up.

I could imagine the reaction if a pimply 15 year old walked in the room with ‘Beats’ headphones hanging round his neck and an Alienware laptop by his side. I think the whole room would have evacuated.

There was one thing in particular the crowd didn’t understand when it came to Hacktivists. It’s the premise they operate without monetary motivation. This was beyond many of the bankers in the room. I could hear internal monologues throughout the room…’Without monetary motivation? Is that possible?’

A cyber criminal will typically steal data to sell in order to make money (i.e. Romanian ATM scammers). Hacktivists are motivated by other means. It’s really not that hard to understand.

It could be political motivation. It could just be because they can. It could even be because they’ve had a bad day.

Regardless of the reason, the Hacktivist operates with a unique set of ideological beliefs. Often they contradict the very existence of everything a bank stands for. And as such, a bank becomes a target.

Whether the banks like it or not they’re fighting an uphill battle. Whether it’s internal or external, cyber security is high on the agenda now.

And the best way to combat this threat is obviously to throw money at it. Now they’re starting to bring on board external companies to help manage their issues.

All Out Cyber Warfare

It’s an environment of all out cyber warfare right now. It’s not just geo-political issues. China spying on America and vice versa isn’t the real cyber warfare underway. It’s the daily attacks and ambushes of networks across the global financial system that we should be most worried about.

Dave Gray, author of The Connected Company calls it ‘network centric warfare‘. He says, ‘The small and agile organization that understands networks has an advantage unless the incumbents can organize themselves.‘

What he means is it’s the ones who get how a network works that will hold the gun to the head of those that don’t. So the young, tech savvy computer scientists and engineers that want to make an impact in the world will enter the market in two forms.

One, as legitimate start-up companies dedicated to shake the system up. Or they’ll take the path following ideology that favours hacktivists and troublemakers.

Either way it’s a new era of digital warfare. There are battles everywhere. State vs. state, hacktivist vs. banks, hacktivist vs. state…maybe soon enough state vs. bank?

I’ve said before that we can’t predict the future, but after the sessions and discussion from today we’re getting a clearer view of what’s likely to happen.

The trend is of increasing cyber security attacks. They’re not stopping, they’re on a parabolic curve upwards. Spending on defence is increasing, and the ‘generals’ are getting worried.

It feels like a crescendo to all out warfare. The feeling I got from today is it’s not a matter of if it will happen, just a matter of when.

Sam Volkering+
Technology Analyst, Revolutionary Tech Investor

Ed note: You can follow Sam at SIBOS on his Google+ page here… 

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